'Smart financing' right move for Md.

TAKE a ticket and get in line if you want a chunk of the excess funds flowing into the Maryland treasury. More dollars from Washington. Growing tax revenue.

Now that Gov. Parris Glendening has won a smashing re-election, there's a temptation to spend, spend, spend. Special-interest groups have plenty of suggestions.

But conservative lawmakers who dominate legislative budget panels dislike big program expansions that could put the state deep in red ink in a recession.

Still, the governor wants to leave a legacy. He's focused on education and health programs.

Another approach is worth considering. It would not create troubles in a recession. Indeed, it would generate savings that would grow each year.

It would have the added benefit of stealing a page from the Ellen Sauerbrey political handbook, thus depriving Republicans of a future campaign issue.

Under this approach, much of the state's extra cash would go into pay-as-you-go (pay-go) construction projects. Instead of issuing 15-year bonds for new schools and state buildings, it would be a straight cash deal.

This idea comes from a 70-page proposal by the Calvert Institute, a Sauerbrey-linked think tank. It suggested reducing state spending by $600 million a year and using that money not only to cut taxes but also to retire state bonds.

Unfortunately, Calvert's plan was fatally flawed. Most of the savings were nonexistent or seriously understated. But the study pointed to a government weakness: High debt costs in Maryland.

In the past six years, Maryland's debt service rose almost 30 percent. Spending on principal and interest was $417 million last year. (It is expected to rise to $633 million by 2007.)

That's $417 million out of the state's general fund that could have been used for improved social services -- or tax cuts.

One way to use the state's surplus would be to enlarge the pay-go program. Mr. Glendening could finance all school construction with cash -- a four-year, $1 billion commitment.

It would be a wise way to use the surplus: These are one-time expenses; they fulfill a social purpose high on the governor's priority list; and the cumulative savings could be put to other uses.

In the first year, the state would save roughly $11.25 million by not floating bonds for schools. By the fourth year, the annual savings would reach $44 million. Each year's savings would continue for 15 years -- the life of a bond issue.

By 2018, the total savings would reach $675 million.

Now that's a return on investment any governor would want as a legacy. Think what could be done with the savings generated. And if Mr. Glendening's successor continued the pay-go effort, the benefits would grow even larger.

The problem is that this isn't a sexy approach. It's a mundane, though fundamentally sound, way to lower government costs while responsibly spending the state's one-time surplus.

The real benefits would flow after Mr. Glendening has left office.

It would be the equivalent of a "smart growth" approach to state finances. Call it "smart financing."

In his first term, Mr. Glendening unveiled an unexciting land-use plan called "smart growth." The idea is to funnel state dollars into existing growth centers to upgrade roads, schools and communities. The goal is to stem costly population sprawl.

It is the most farsighted program of Mr. Glendening's tenure. But the dividends won't be readily seen for years.

So there is precedent for a "smart financing" program. Yet pressures are building to earmark surplus dollars for multiple social causes, all of which will require more state funds annually.

It would take courage to disregard these pleas for help, especially since most of the pleaders worked hard for Mr. Glendening's re-election. He wants to reward them. But at what cost to this state's future?

That's why a pay-as-you-go plan holds considerable appeal. It's a good public investment; but would it be good politics?

Barry Rascovar, a deputy editorial page editor, is the author of "The Great Game of Maryland Politics."